I'm afraid you both screwed up and dreaming at the same time. But that's OK. You should put the position on a P&L graph like the one at TOS, and you will immediately see that the position you describe is the equivalent of a bear put spread. You already have a long Jun 30p, and the covered call position is a synthetic short put. Assuming you bought the stock at 30.00, the put at 2.20, and sold the call at 5.40, your break even at expiration would be around 28.20. Max gain of $320 if stock closes below 25.00, and max loss of $180 if stock closes above 30.00.
Looking at it from another standpoint, the long stock and long put is a synthetic long call. Since you already have the short call at 5.40, so now you have the equivalent of a bear call spread with the same max gain and loss. Check out Charles Cottle's book which I think has been mentioned in this forum. You will understand this stuff inside and out. Doesn't mean you'll make any money, though. You will have to pick up a psychology book for that!
RFH
--- In ConservativeOptionStrategies@yahoogroups.com, "Louis" <loupi3@...> wrote:
>
> I try to look at strategies from different angles and sometimes I think I get mixed up in my own mathematics, so I've either come up with a good play, or it's totally (or partially) screwed up. Maybe somebody can tell me where I'm wrong.
> I started when I was reviewing a collar kind of strategy which involved a short call and a long put, each one strike out of the money (stock @30, CC@35 and long put @25).
> I then began experimenting with a short call and long put one strike in the money and here's what I'm coming up with using MED as an example.
> Stock closed today @30.01. Then STO June 25 call @5.40 and BTO Jun 30 put @ 2.20, net credit per contract $320.
> If stock drops to 20 at expiration, then I lose 1000 on stock, but gain 1000 with put, net gain $320.
> At 25,the stock is assigned, and I've lost $500 on it, but I gain 500 with the put (either selling it or exercising it and reselling the stock), net gain $320.
> From 30 and up both options are gone, and I have the premium.
> So, it seems that on a stock purchased at 30, with this strategy I make $320 almost whatever happens, a 10+% return in 3 weeks.
> I looked at MED and can see nothing that indicates any major changes.
> Now will someone wake me if I'm dreaming?
> Thanks.
> Lou
>
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